Iris Rekola

Hedging Corporate Income Tax Revenue in Finnish Municipalities: Finance Iris Rekola

This book is a study of municipalities' possibilities to hedge corporate income tax revenues with stock market instruments. Four case municipalities Finland are considered in more detail. The hedging instruments are based on the S&P 500, Nasdaq 100 and OMX Helsinki indices. It is also looked at whether consolidation of municipalities would reduce the volatility of the tax revenues. The results show that the stock market based hedging strategy does not give trustworthy results that could be used to determine optimal strategies for the future. Even though theoretically the link between corporate revenues and stock markets should be significant, the tax revenues have been affected greatly by political decisions and legislation changes in the past, and thus determining optimal hedge ratios is not possible. Consolidation of the municipalities would have reduced the volatility of individual municipalities's tax revenues in the regions studied. The study concludes the process of consolidating municipalities to be an interesting topic for future research and a possible mean to reduce the volatility of the tax revenues in practice.